Another stupid Martin Wolf Financial Times column. With commentary.

“Keynes offers us the best way to think about the financial crisis” (but only if you lack imagination, integrity, courage and intelligence, or if you work for the pro-government cathedral. Those two qualities often coincide.)
The ghost of John Maynard Keynes, the father of macroeconomics, has returned to haunt us. With it has come that of his most interesting disciple, Hyman Minsky. We all now know of the “Minsky moment” – the point at which a financial mania turns into panic.-Why might this be? Because classical liberalism does not allow interventionism. Given that the cause of the current crises is interventionism (subsidized government-backed housing loans, a federal reserve, fiat money fractional reserve banking system, all packed in a crazy system of webs of regulation and random rule-changes and market participants trying to optimize within and around this crazy system), why would you suddenly revert to classical liberalism when your system doesn’t function as expected? The answer, of course, is MORE intervention. You can call this Keynesianism, but in the end it is the same old story. Government using anti-freedom arguments to explain its own failure to expand itself. Keynesianism is the pseudo-intellectual ammunition that shrouds this all in a respectable aura.
Like all prophets, Keynes offered ambiguous lessons to his followers. Few still believe in the fiscal fine-tuning that his disciples propounded in the decades after the second world war. But nobody believes in the monetary targeting proposed by his celebrated intellectual adversary, Milton Friedman, either. Now, 62 years after Keynes’ death, in another era of financial crisis and threatened economic slump, it is easier for us to understand what remains relevant in his teaching.
I see three broad lessons.
The first, which was taken forward by Minsky, is that we should not take the pretensions of financiers seriously. “A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.” Not for him, then, was the notion of “efficient markets”.-That’s right. Bankers are government backed predators, destroying free markets and capitalism. I don’t blame the bankers, but government for allowing this system to exist and for calling it a “free market”.
The second lesson is that the economy cannot be analysed in the same way as an individual business. For an individual company, it makes sense to cut costs. If the world tries to do so, it will merely shrink demand. An individual may not spend all his income. But the world must do so.-So much confusion in this paragraph. “The world must spend all its income”. How so? There are individuals out there that are producing goods and services. (let’s ignore the non-sense “produced” through government subsidies and bureaucracies, which, alas, are often the cause of the trouble). When these individuals readjust their predictions for the future, they might save more instead of spend. They like to have a little stack of goods to protect them from future scarcity and high prices. The size of this stack of goods depends on expectations. Obviously after a huge change in expectations, people will expand this stock and spend less, probably on frivolous goods. People earning their living making these frivolous goods will have to adjust towards more valued activities, helping to increase the stock of “preparedness” goods. Of course, these people might not be able to find a job they like, and go on government handouts or join the government bureaucracy, further driving down the wealth of the more productive people.
The third and most important lesson is that one should not treat the economy as a morality tale. In the 1930s, two opposing ideological visions were on offer: the Austrian; and the socialist. The Austrians – Ludwig von Mises and Friedrich von Hayek – argued that a purging of the excesses of the 1920s was required. Socialists argued that socialism needed to replace failed capitalism, outright. These views were grounded in alternative secular religions: the former in the view that individual self-seeking behaviour guaranteed a stable economic order; the latter in the idea that the identical motivation could lead only to exploitation, instability and crisis.

– A stable economic order is very much UNLIKE what the austrians think human activity looks like. However, they DO think that having individuals pursue their activities freely leads to the best way to adjust to ever-changing circumstances. A constant re-optimizing and flexibility embraces INstability, and is thus best able to cope with the changes inherent in an unpredictable existence. Socialists haven’t solved that problem yet. They think that government can better cope with the unknown, but it cannot. It fails miserably and at great cost, again and again.
Keynes’s genius – a very English one – was to insist we should approach an economic system not as a morality play but as a technical challenge. He wished to preserve as much liberty as possible, while recognising that the minimum state was unacceptable to a democratic society with an urbanised economy. He wished to preserve a market economy, without believing that laisser faire makes everything for the best in the best of all possible worlds.
– The Austrians do not engage in “morality play”. Von Mises Socialism is a technical refutation of the socialist arguments. That the idea of a free individual is also at the heart of our western identity and is philosophically desirable is a very important part of the freedom philosophy that is anti-state intervention, but also on purely “technical grounds” the austrians win the debate. If you can call coping with uncertainty and imperfect knowledge technical, that is. Recognizing the limits of our ability to doctor solutions is a way to cope with the limits of our technical planning abilities, something that those “concerned with the common good” do not like to hear. They want new school buildings, spending and taxing, plans, highways, education, and whatever is on their wish-list for santa.
This same moralistic debate is with us, once again. Contemporary “liquidationists” insist that a collapse would lead to rebirth of a purified economy. Their leftwing opponents argue that the era of markets is over. And even I wish to see the punishment of financial alchemists who claimed that ever more debt turns economic lead into gold.

– If you ran a business soundly, you are still in the running. Only fools have failed in this crash, and that includes the banking class, which has been exposed for what it is: a big fraud, legitimized by their cozy relationship with government (money is government money after all) and central banks, enjoying an aura of respectability (now forever tarnished, luckily), and somehow being called “capitalist”, as if being at the heart of our wealth. No, individual entrepreneurs and their outgrowths, companies (not too big too fail) that try to make a profit, and do so consistently when left alone in good and bad times.
Yet Keynes would have insisted that such approaches are foolish. Markets are neither infallible nor dispensable. They are indeed the underpinnings of a productive economy and individual freedom. But they can also go seriously awry and so must be managed with care. The election of Mr Obama surely reflects a desire for just such pragmatism. Neither Ron Paul, the libertarian, nor Ralph Nader, on the left, got anywhere. So the task for this new administration is to lead the US and the world towards a pragmatic resolution of the global economic crisis we all now confront.– “Managed” with care? Markets need to be managed? Financial markets need to be UNmanaged by abolishing the central banks and govt. money. Then a new and healthy system will spring up (although there will always be those on the lookout the re-nationalize it all.). Ron Paul didn’t get anywhere because democracy is mostly a sham. If enough people depend on government, it perpetually expands and fortifies itself instead of serving the true good of mankind, which is preserving individual liberty. In this way, the meek can safely enjoy the fruits of the individual risk-takers who are constantly out there in the real world, fighting uncertainty and producing value. Obama is the ultimate expression and the final collapse of the last free government on earth, which has consistently been undermined throughout the twentieth century Now, the tax-dollar paid technocrats and their voter blocks are in charge. An American Democracy led by an almighty American Administration, administering to the needs of the People.
The urgent task is to return the world economy to health.

– No. We all have our individual task of taking care of our businesses as best we can. If we are truly optimistic and generous, perhaps we can battle tyrannical governments at home and abroad who prevent us and others from doing so.
The shorter-term challenge is to sustain aggregate demand, as Keynes would have recommended. Also important will be direct central-bank finance of borrowers. It is evident that much of the load will fall on the US, largely because the Europeans, Japanese and even the Chinese are too inert, too complacent, or too weak. Given the correction of household spending under way in the deficit countries, this period of high government spending is, alas, likely to last for years. At the same time, a big effort must be made to purge the balance sheets of households and the financial system. A debt-for-equity swap is surely going to be necessary.– Yeah, why not. Government institutions messed up. Tax-payers will get more government as a response, after having bailed out the frauds on wall street. Given that we are poorer now, we should “sustain aggregate demand” to the level it was at the time we thought we were richer. Sounds smart! Yes we can! On printed dollars and higher taxes everything is possible..
The longer-term challenge is to force a rebalancing of global demand. Deficit countries cannot be expected to spend their way into bankruptcy, while surplus countries condemn as profligacy the spending from which their exporters benefit so much. In the necessary attempt to reconstruct the global economic order, on which the new administration must focus, this will be a central issue. It is one Keynes himself had in mind when he put forward his ideas for the postwar monetary system at the Bretton Woods conference in 1944.– When people will not be bailed out if they make mistakes, they will stop taking on enormous levels of debts. The rebalancing is what is happening now, and does not need to be forced. The readjustment should not be PREVENTED though through more government waste.
No less pragmatic must be the attempt to construct a new system of global financial regulation and an approach to monetary policy that curbs credit booms and asset bubbles. As Minsky made clear, no permanent answer exists. But recognition of the systemic frailty of a complex financial system would be a good start.

– First line of sense is the last one here. The FINANCIAL SYSTEM is FRAGILE. It is NOT a “free market” and it is HIGHLY susceptible to boom-bust cycles. That is another lesson of the Austrians, who have consistently argued that it is the government-approved and sustained central bank financial system that is destroying the last vestiges of individual freedom by giving ever more arguments to take on MORE government power.
As was the case in the 1930s, we also have a choice: it is to deal with these challenges co-operatively and pragmatically or let ideological blinkers and selfishness obstruct us. The objective is also clear: to preserve an open and at least reasonably stable world economy that offers opportunity to as much of humanity as possible. We have done a disturbingly poor job of this in recent years. We must do better. We can do so, provided we approach the task in a spirit of humility and pragmatism, shorn of ideological blinkers– co-operate? ideological blinkers? selfishness? AH! we must SHED OUR SELFISHNESS! What a great plan for improving the world. How many degrees do you need to come up with that? How much selfishness must we shed? 40%, 50%, 60%, heck, why not 99% on all income over 50,000$. That way government can fix all our problems through the intelligent application of sound policy. And by building new school buildings. Yeah right.
As Oscar Wilde might have said, in economics, the truth is rarely pure and never simple. That is, for me, the biggest lesson of this crisis. It is also the one Keynes himself still teaches.– Who gives a crap about Oscar Wilde. Quotes are for facebook. The truth is pure and simple, but only after wading through the morass of modern government’s institutional layers. There is no utopia, and striving for it through government will destroy us. Only individual striving, cooperating and competing can lead consistently to improvements. At best government can protect this system of individual rights by protecting its infrastructure through sound laws protecting individual rights and by having a strong security force which wards of covetous neighbors and maniacs. At worst government morphs into the default solution to all our problems, legitimized through the myth of majority democracy, it’s failures masked by the continued improvements that take place outside of its claws, although these expansions of the possible have increasingly less room to freely grow without constraint, the soil from which the flowers grow now barren, its precious sunlight blocked, and a cold wind blowing over its fields.

If this guys is our mainstream voice, we’re screwed. Yes, we’re screwed. The socialists are in charge now. At least it’s out in the open now, with the banks still having legitimacy the argument was always harder to make that we did not have a free system. Now, we are in the opposition. For the unforeseeable future. Rhodesia, Beautiful Rhodesia..

We’ll preserve this little nation, for our children’s children too. Once you’re a Rhodesian, no other land will do. We will stand to all in the sunshine, with the truth upon our side. And if we have to go alone, we will go alone with pride.

Cause we’re, all Rhodesians and we fight through thick and thin. We’ll keep our, land a free land, stop the enemy coming in. We’ll keep them North of the Zambezi, till that river’s running dry. And this mighty land will prosper, for Rhodesians never die.